Under Suresh Prabhakar Prabhu, the Indian Railways appears to have come out of the rut

India may spend as much as $16 billion – over $1 billion more than initially estimated – on the nation’s first bullet train to elevate the entire railroad, a person with direct knowledge of the matter said.

Land acquisition hurdles, as well as people and animals potentially wandering in front of carriages speeding at 350 kilometers (217 miles) an hour, make the option of an elevated link attractive, the person said, asking not to be identified as the plans are private. Construction starts in 2018, the person said.

India is working with Japan to build the 508 kilometer high-speed track from financial capital Mumbai to the economic hub of Ahmedabad in Prime Minister Narendra Modi’s home state of Gujarat. A Japanese-designed Shinkansen train will connect the cities in a project initially estimated to cost 980 billion rupees ($14.6 billion), one of India’s biggest infrastructure endeavors.

Modi’s government is keen to elevate the entire railroad – at an extra cost of about 78 billion rupees – and operate the train from 2023, the person said. A dozen stations are planned and 2,000 jobs may be created in a project officials expect to spur economic growth, the person said.

A bullet train would help drag the world’s fourth-largest railroad into the 21st century. The network carries about as many passengers daily as Australia’s population, but is both congested and aging, with roots dating back to British colonial rule. Modi is seeking to spend 8.5 trillion rupees through 2020 on new tracks, trains and stations.

For more on Indian Railways’ goal of a $126 billion overhaul, click here.

The challenge is to execute the bullet train project on time, said Gaurang Shah, Vice President at Geojit BNP Paribas Financial Services Ltd. Success would help improve the railway’s image, which has been battered by years of losses despite government investments, he said.

A $16 billion outlay would be close to 1 percent of India’s $2 trillion gross domestic product, which is already expanding at the fastest pace among major economies. Japan has offered to fund 81 percent of the initial project cost with a 50-year loan at a 0.1 percent interest rate.

A state company is being set up for implementation, and at least half the spending will probably go to local contractors such as Larsen & Toubro Ltd., Gammon India Ltd. and GMR Infrastructure Ltd. for track and stations, the person added.

Japan pioneered bullet trains, debuting them in time for the 1964 Tokyo Olympic Games. Since then, roughly 5.6 billion passengers have used the Tokaido Shinkansen, which links Japan’s three largest metropolitan areas of Tokyo, Nagoya and Osaka, according to the Central Japan Railway Co.

About 15 billion rupees of the project will go to Japan for elements such as train design and signaling, the person said. India wants local train manufacturing, but one challenge is that companies may be reluctant to set up plants with Japanese partners without a pipeline of similar future projects, the person said.

India has a mixed record on railway infrastructure projects. A plan to add 3,360 kilometers of track dedicated to cargo trains, first announced in 2005, still hasn’t been completed, with 14 percent of the land needed yet to acquired. In contrast, the 213-kilometer New Delhi-metro system is seen as defying perceptions that India’s infrastructure projects are graft-addled and routinely exceed cost estimates.

‘Start Somewhere’

While Modi has described the bullet train project as historic, opponents question the plan, arguing fares will be beyond the reach of many in a country where most people live on less than $3.10 per day. The money could be used on basic needs such as housing for the poor, according to main opposition Congress party.

A survey of the railroad’s route is under way and will be used for the design of the link, the person said. The credit agreement with Japan for the long-term loan is due to be finalized this year, the person added.

“What you have to crack is the ability to replicate this technology – to develop the capability in our country to do this in-house,” said Rajaji Meshram, a Director of Infrastructure and Government services at KMPG in New Delhi. “We have to start somewhere.”

Under Suresh Prabhakar Prabhu, the Indian Railways appears to have come out of the rut, and overcome its earlier state of acute financial stress, with Rs 5 lakh crores worth of projects stuck. Taking charge at Rail Bhavan six months after the Narendra Modi government came to office, this chartered accountant quickly demonstrated why he is known as a man of reforms. The first minister to take charge of the Railways in the Modi government was D.V. Sadananda Gowda, but he too failed to bring any effective solutions. The change started soon after Mr Prabhu took over in November 2014.

To address the Railways’ immediate requirements, Mr Prabhu sought to find funding sources outside the normal Gross Budgetary Support. “Even the money the finance ministry provides through GBS is sourced from debt financing. Why should not the Railways go to the market and get the money,” he asked while presenting his first Rail Budget.

He soon got a Rs 1.5 lakh crore soft loan from LIC, and began to meet the heads of financial institutions to urge them to lend to private firms working on rail projects. The effect of this was quickly visible: the Railways commissioned 2,828 km of new lines, doubled broad gauge conversion in the last financial year. This was four times the annual average in 2009-14. “Earlier we had no assured funding, and thus projects were not taken up for commissioning with deadlines. Now we know the funds are there and the race is to expedite commissioning. In the current financial year we will commission 2,900 km of new tracks, that will be 4,500 km in 2017-18 and 7,000 km in 2018-19,” said V.K. Gupta, member (engineering) at the Railway Board.

The twin dedicated freight corridors linking Dadri-Mumbai and Ludhiana-Dankuni (Kolkata) have seen a major push and Mr Prabhu has said they will be commissioned in 2018. The minister thus appears logical when he promised he will double the speed of passenger and freight trains in the next four years, besides ensuring tickets on demand.

But what really brought about a remarkable change in public perception about the Railways is the effectiveness of the real-time grievance redressal system Mr Prabhu set up, that will now be studied by IIM Ahmedabad.

“I initially used to use Twitter and respond to distress messages by passengers. (As) the volume of messages shot up, I made it mandatory for all general managers and divisional railway managers to use Twitter and connect with passengers. They put in place systems to respond to the passengers’ distress messages,” said Mr Prabhu, who added that the Railway Board has also put in place an elaborate cell for this purpose.